7th Pay Commission: Where the gains will be delivered

Just how big is the consumer-spending opportunity provided by the report of the Seventh Central Pay Commission released last month?


For consumer-facing businesses, especially makers of automobiles, consumer goods, electronic items and houses, the Pay Commission is a window of opportunity to tap the greater disposable income in the hands of the staff of India’s largest employer. Photo: Priyanka Parashar/Mint
For consumer-facing businesses, especially makers of automobiles, consumer goods, electronic items and houses, the Pay Commission is a window of opportunity to tap the greater disposable income in the hands of the staff of India’s largest employer. Photo: Priyanka Parashar/Mint

For the 3 million-odd central government employees, the Pay Commission is a decadal harbinger of hope, outlining their salary increments for the next 10 years. For consumer-facing businesses, especially makers of automobiles, consumer goods, electronic items and houses, it’s a window of opportunity to tap the greater disposable income in the hands of the staff of India’s largest employer.

They are looking at one such imminent opportunity, with the release of the report of the Seventh Central Pay Commission last month. Just how big is this opportunity? How is it spread across various categories of employees? And where are the large pockets?

An estimate of all three facets can be made by juxtaposing data from two reports. The first is the latest Pay Commission report. It gives salary details of the old pay buckets of central government employees, their reorganization into a new pay matrix and the salary increase in each.

The second report is the latest census of central government employees. Although released in 2014, it provides data as on March 2011, counting 3.1 million employees. It gives details of 1.45 million such employees in 73 Indian cities, or 47% of all government employees. Crucially, it breaks up this 1.45 million by their old pay buckets.

For these 1.45 million employees, we used these two data sets to work out their current salary and new recommended pay, and thus their increment. Further, we classified them under three categories: Group A (estimated salary range: Rs.56,000 to Rs.3.1 lakh), Group B (Rs.44,000 to Rs.2.08 lakh) and Group C/D (Rs.22,000 to Rs.1.14 lakh).

We estimate that if the Seventh Pay Commission recommendations are implemented, these 1.45 million employees in 73 cities will see their collective salary increase by Rs.22,932 crore, or about 21%. Even within this set, the top 25 cities account for 80% of central government employees and 82% of estimated salary gains. Put another way, these 25 cities account for 38% of the potential Pay Commission gains.

Use the visualization below to see how many central government employees are there in each of these cities, how they break up by various groups and how much they stand to gain from the Seventh Pay Commission.

Methodology

The starting point was the way government salary is structured. Broadly, there are three components: pay band, grade pay and allowances. At present, there are four pay bands and 15 levels of grade pay.

Current salary framework

The first pay band is Rs.5,200-20,200. Within this, there are five grade-pay progressions: 1,800, 1,900, 2,000, 2,400 and 2,800. For example, Mr X got a job at this pay band. His basic pay would be Rs.7,000 (Rs.5,200 derived from the pay band and Rs.1,800 as grade pay).

If he stays in the same designation, he would progress within a particular grade pay, with an annual increment of 3%. If he gets promoted, he would still be in same pay band, but will get a higher grade pay of Rs.1,900. In other words, to check the seniority of a government employee, ask their grade pay. The grade pay ranges from Rs.1,800 for Group C employees to Rs.10,000 for Group A officers.

The sum of pay band and grade pay is basic pay. Most allowances, notably dearness allowance (DA) and house rent allowance (HRA), are calculated on basic pay.

The Seventh Pay Commission assumed current DA of 125%. So Mr X would receive Rs.8,750 per month as DA (125% of Rs.7,000). The HRA quantum varies across cities. If Mr X lived in Delhi, he would get an HRA of 30% of basic pay, or Rs.2,100 per month.

Thus, the sum total of Mr X’s salary is Rs.17,850: Rs.7,000 basic pay, Rs.8,750 DA and Rs.2,100 HRA. This is the lowest possible salary in central government service today.

New salary framework

The Seventh Pay Commission has recommended doing away with the system of pay band and grade pay. In its place come 18 levels, with 1 being the lowest and 18 the highest (cabinet secretary). Broadly, the 15 grade pays are matched with different levels. For example, grade pay of Rs.5,400—what an entry-level Group A officer would get—is now level 10.

The yearly increment is now called pay progression. For each level, the number of pay progression possible ranges from 1 to 40. If he doesn’t get promoted, Mr X will move from 1 to 40 over the next 40 years.

The 18 levels, representing a hierarchy, are arranged horizontally. Pay progression is arranged vertically. The combination of these two is the pay matrix, with 18 columns and 40 rows.

Salary increase

The Pay Commission combined the current basic pay and DA to derive the new basic pay. Next, it increased salary by 16% on this new basic pay. This amounts to 2.57 times the current basic pay. For Mr X, the new basic pay would be Rs.17,990, as compared to Rs.7,000 now. On top of this will be new HRA, calculated at 24% of basic pay.

Basic pay: Rs.7,000 (current); Rs.17,990 (recommended)

DA: Rs.8,750 (current)

HRA: Rs.2,100 (current); Rs.4,318 (recommended)

Total: Rs.17,850 (current); Rs.22,308 (recommended)

Mr X, because of the Seventh Pay Commission’s recommendation, will now see a 25% increase in salary.

Increase for 73 cities

Now that we know the different levels of earnings of government employees, the next step is to estimate the number of employees at each of the different levels in different cities.

For this, we tapped the Census of Central government employees. Although released in 2014, it shows data as on March 2011, counting 3.1 million employees. This contained details of how many central employees were there for 73 cities. Further, in each of the cities, there were details of the number of employees in each grade pay.

We matched this data with the pay matrix suggested by the Seventh Pay Commission. Multiplying the number of employees at each grade pay will give the total salary bill, sliced for each city and for different levels.

We made two assumptions:

1. City-wise age data was not given. So, we took the age break up for all central government employees from the Pay Commission report, and applied it across cities. There were four age groups (20-30 years, 30-40 years, 40-50 years and 50-60 years). We divided pay progression (of 40 steps) for each level into four equal groups.

So, in level 1, we averaged the first 10 steps in the pay progression, and assigned this amount to 20-30 years. Approximately, 22% of employees are in 20-30 years. The total number of employees was multiplied by 0.22. Multiplying the two numbers gave us the salary bill for 20-30 year olds in level 1. We repeated this for other age groups and across levels.

2. The second was related to the sole grade pay band applicable both Group B and Group A employees; we assigned equal employees to both groups. Further, in some cases, Census data has given one employee count by combining two grade pay. Here, we apportioned half the employee count to each grade pay.

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